Money Stuff You Need to Do Before Buying A Home

You know how to look for a house, but the money part is trickier. Here's a step-by-step breakdown of the financial details of a home purchase that need to be worked out months before you want to move in.

Homeowners with Sold Sign

You know how to look for a house. But the money part is trickier. You need to start working on the financial details of buying a home three to four months before you want to move into your new digs. Here’s a step-by-step breakdown:

1. Gather the financial documents you’ll need to get a mortgage:

pay stubs

statements from banks, brokerages and retirement accounts

income tax returns

records of debts such as auto loans, mortgages, student loans and credit cards

2. Find out your credit score. You can go to MyFICO.com and see your credit score and a get a copy of a credit report for $12.95. Your credit score is a distillation of your bill-paying history expressed as a three-digit number between about 300 and 850, the higher the better. A score above 720 is most desirable, the equivalent of a getting an A. These credit scores are calculated using a secret mathematical formula devised by the data management company Fair, Isaac & Co.- hence the name "FICO."

3. Fix any errors on your credit report. Errors appear regularly on credit reports, and they can lower your credit score and keep you from getting loans with lower interest rates. Clerical or computer errors cause most mistakes on credit reports. You can correct them by sending a letter to the credit bureau describing the mistake and requesting an investigation. Getting that incorrect report off your credit report will take at least a month.

4. Find a broker or lender, who will look at your pile of paper and estimate how much you can afford to borrow. Note to self: Prepare to be shocked at how much money lenders will give you. And don't borrow that much.

5. Get pre-approved for a mortgage so that when you make an offer for a house, it’s taken seriously. When you're pre-approved, a lender has agreed to lend you a certain amount of money for your home purchase at specified terms and conditions. Pre-approval gives you leverage in the deal-making process, because it establishes your buying power. The letter of preapproval you get from your lender makes the bid you put on a property as reliable as a cash offer.

Now that you're pre-approved for a mortgage, you're ready to shop till you drop.